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Japan has historically been an economy that produces huge trade surpluses and therefore enjoys current account surpluses. This in turn has allowed the government and businesses in Japan to enjoy very low interest rates because of the excess savings of Japanese households.
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Japanese current account deficit drops to worst on record in December 2013
Posted on February 10, 2014 by the XM Investment Research Desk at 3:07 pm GMT
Japan has historically been an economy that produces huge trade surpluses and
therefore enjoys current account surpluses. This in turn has allowed the
government and businesses in Japan to enjoy very low interest rates because of
the excess savings of Japanese households.
However, during December of 2013, the country registered its worst ever current
account deficit at 638.6 billion yen. Economists expected the deficit to be around
700 billion yen. November’s deficit was at 592 billion yen.
The deteriorating current account has been partly the result of a rising fuel bill as nuclear plants in Japan have been closed and fossil fuel needs to be imported. In
addition, consumers are bringing forward their spending plans ahead of a planned
tax hike in April, which boosts imports.
The economy is expected to contract briefly following the higher sales tax.
Furthermore, the drop in the value of the yen makes imports more expensive,
whereas the exporters of Japanese goods have not yet benefitted to the same
degree from higher demand for cheaper-priced Japanese goods. This is known to
economists as the J-curve effect, whereby following a currency’s devaluation, the
trade balance initially worsens before gradually improving.
For 2013 as a whole, Japan’s current account did manage to post a surplus of 3.3
trillion yen- also the smallest surplus since records were kept. Imports rose 15.4%
against a 9% rise in exports, according to data from the Ministry of Finance. The
current account was supported by an income surplus of 16.5 trillion yen.
The report added to the pressure on the yen at the time it was released, although
it was better than analyst expectations. The medium-term course of Japan’s
current account could become an important topic for the country’s economy if it
continues to slide into deficit. This could in turn create pressure on the
government as it tries to attract capital to finance its public debt, which exceeds
240% of GDP.
Source: XM
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